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LESSON 1
Real Property and the Nature of Value
Assigned Reading
1.
Appraisal Institute of Canada & Appraisal Institute (US). 2010. The Appraisal of Real Estate, Third
Canadian Edition. Vancouver: UBC Real Estate Division.
Chapter 1: Real Property and Its Appraisal
Chapter 2: The Nature of Value
2.
First Principles of Value, Appraisal Institute of Canada (revised January 2008). www.aicanada.ca –
search on the title.
3.
Professional Competencies, Appraisal Institute of Canada (Extracted from the AIC Applied Experience
Guidelines, August 2010). www.aicanada.ca – search on the title.
Note: Selected readings can be found under "Online Readings" on your Course Resources website.
Recommended readings are provided only for your information, should you wish to learn more
about these topics. Recommended readings are NOT tested on the final examination.
Recommended Reading
1.
Appraisal Institute of Canada & Appraisal Institute (US). 2010. The Appraisal of Real Estate, Third
Canadian Edition. Vancouver: UBC Real Estate Division.
Chapter 5: The Money and Capital Markets
2.
Canadian Assessment Legislation. Vancouver, UBC Real Estate Division.
3.
"Canadian Uniform Standards of Professional Appraisal Practice" (CUSPAP), published by the Appraisal
Institute of Canada. "Appraisal Standard – Rules" and "Practice Notes – Report".
4.
Fair, C. 1999. "The Concept of Value". Vancouver: UBC Real Estate Division
5.
Ozdilek, U. 2010. "On Price, Cost, and Value". Appraisal Journal. 78(1). pp. 70-80. This article visits
economic notions of price, cost and value as they are applied in real estate economics, and appraisal
practice in particular.
6.
Real Estate Management and Brokerage and their Importance to Appraisal. Vancouver: UBC Real Estate
Division.
7.
Trice, J.N. 2009. "Reengineering the Appraisal Process". A white paper prepared by the Collateral Risk
Network (CRN). Cincinnati, Ohio.
8.
UBC Real Estate Division and the Appraisal Institute of Canada. 2013. BUSI 499 Workbook. Vancouver:
UBC Real Estate Division.
Lesson 2: Critical Thought
1.1
Lesson 1
Learning Objectives
After completing this lesson, the student should be able to:
1.
discuss the reasons why real property appraisal is necessary and why it is important to have appraisal
recognized as a profession;
2.
explain the "concepts of land" and the various factors which affect land value;
3.
distinguish between the concepts of real estate, real property, and personal property;
4.
know the difference between fixtures and chattels;
5.
distinguish between the purpose and use of an appraisal;
6.
explain the difference between market value, market price, and cost of real estate;
7.
define market value and explain how it relates to other definitions of value that an appraiser might be
asked to find; and
8.
discuss the four concepts affecting land valuation.
Instructor's Comments
This lesson will provide an introduction to real property appraisal and to the concepts of value which underlie it.
You will first be presented with a discussion of the appraisal profession in general, examining the various types
of appraisal and the development of appraisal as a profession. You will then be introduced to the concepts of
land and the rights that an owner of a property receives upon the purchase of real estate, and factors that affect
property value, such as government and legal requirements, economic conditions, social conditions, and the
impact of geography and the environment.
The difference between price, cost, and value will be explored. Market value is generally the most common type
of value sought, but you will be introduced to other values an appraiser may be asked to find and it will be
discussed how these values differ. The value to be found in an appraisal depends upon the purpose and use of the
appraisal.
Throughout this course you will have to remember various lists or categories. Some
students find it helpful to remember these by creating keywords which are made up
of letters from those points. For example the four forces affecting real estate value,
physical, economic, government, and social, spell the word "PEGS". You should
create keywords wherever possible, in order to help remember key concepts. A
couple of examples are used in this lesson.
1.2
Real Property and the Nature of Value
What is an Appraisal?
The simplest definition of an appraisal is that it is an estimated opinion of value. It can be given orally, but most
often it is a written report. The definition of a professional appraisal is that it is a formal opinion of value:
prepared as a result of a retainer; intended for reliance by identified parties; and for which the appraiser assumes
responsibility. Appraisal reports are normally prepared by professional appraisers.
Appraisal as a Profession
An appraiser has obligations to five stakeholder groups:
1. Clients, to provide an unbiased, objective analysis to help in decisionmaking and to reduce risk.
2. Third parties such as lending institutions, investors in lending
institutions, government agencies that underwrite lending institution
losses, and other unidentified parties that are removed from the initial
transaction.
Stakeholder Groups:
•
•
•
•
•
Clients
Third parties
Society
Appraisal profession
Peers
3. Society in general. By use of the valuation process, appraisers can help to promote the wise and
efficient use of a scarce and limited resource, that is, land and land-related resources. Appraisers can be
important in guiding sound real estate decisions, thereby helping society to avoid wasting resources that
can cause urban problems.
4. The appraisal profession. By providing valuable analysis, the appraiser reinforces the value of the
profession to the above three entities.
5. Peers. By adhering to professional standards in the delivery of appraisal services, the appraiser
represents all appraisers in how services are delivered and in establishing a positive rapport and trust
between all appraisers and members of the other four groups.
In studying appraisal, the skills to develop include the ability to observe, investigate, and analyze real estate
markets and the actions of the people who participate within them. This has grown complex in recent years, as a
result of the fast changing type and character of real estate developments in Canada. To help manage this
complexity, national and international appraisal organizations have begun to pursue close relationships with each
other, fostering a free exchange of knowledge and techniques to the mutual benefit of all practitioners.
Appraisal strives to be recognized as a profession. A profession may be defined as an organized vocation, the
members of which must conform to a recognized standard of ability before they may enter and must enforce a
standard of conduct while they practice. The members of the profession must perform an expert or specialized
service to those who lack the necessary skills to perform the service themselves. Until comparatively recent
times, the term "professional" was restricted to such vocations as law and medicine. With increased
specialization in our society has come the acknowledgement of other professions such as accounting,
architecture, dentistry, engineering, and teaching.
Why do people desire professional status?



They want to share the distinction and prestige that is accorded to members of recognized professions.
A person with qualifications and a professional standing is in a better position than an unqualified
person to render their services to those who are in need of such service.
To provide some service to the public and make a contribution to the community in which they reside.
1.3
Lesson 1
There are three factors which serve to distinguish a profession from a trade or service industry:
1. Integrity – absolute honesty and conduct above reproach must prevail. There is a prescribed duty to both
the profession and the public not to misrepresent his/her ability by accepting an assignment for which
he/she is not qualified. Compliance with a Code of Ethics and Rules of Professional Conduct of any
organization are of paramount importance and any violation by the members must be dealt with quickly
and fairly in the eyes of the profession and the public.
2. Competence – possessing thorough theoretical and practical training along with sufficient work
experience. There must be a recognized set of standards enforced as a condition of membership, which
can accurately be measured (i.e., examinations which demonstrate competency).
3. Quality Work – work performed must be thorough, painstakingly meticulous, impartial, and based upon
sound judgment. All work must be carefully prepared, thoroughly checked, and reports expertly
written.
Therefore, to attain professional status, appraisers must ensure that the services they provide are of the highest
level of quality and competence, and that they adhere to a Professional Code of Ethics and Rules of Professional
Conduct which ensures public faith in their integrity and competence.
In terms of professionalism, real property appraisal has advanced a long way in recent years. Today, there
remains a discriminating demand for accurate valuation and general appraisal service on behalf of the industry,
business, civic and public administrators, as well as related professions. The growth and development of
technical appraising derives in no small measure from the individual efforts of leading appraisers who have won
great respect for their profession. No matter how great the technical skill attributable to a given field of
specialization, the key to a profession's favourable recognition remains the traits and abilities of the individuals
within it.
As a specialized practice, appraisal is exerting considerable influence on real estate decision making, as growing
population, increasing business expansion, taxation, social character, laws, and financial structures all combine
to make such decisions more and more complex. As appraisal becomes increasingly technical and complex, the
general public will increasingly look to valuation professionals to provide sound advice to support their decision
making processes.
Categories of Appraisal Practice
Although the various services provided by appraisers or practitioners are diverse, the sources of employment or
classification of appraisers can be grouped into three general categories: fee appraisers, institutional appraisers,
and government appraisers.
Fee Appraisers
As the name implies, the fee appraiser charges a fee on the basis of time for services rendered. This appraiser
may operate and own an independent office or be a part of a larger national company, which may employ
various professionals. Many independent offices are owned as a partnership, whereas the larger company would
likely have a chief appraiser responsible for the appraisal department. Many offices now have standardized forms
for the most common property types, in order to ensure that all factors are accounted for in the process of
appraising that specific property type.
There has been a steady increase in the sophistication of appraisal techniques meaning that the contemporary
appraiser must have a solid foundation in the social sciences and statistical techniques. As well, the advent of
computers has increased the sophistication required in modern appraisal practice. Knowledge is now required of
1.4
Real Property and the Nature of Value
computer science, quantitative methods, probability theory, urban economics, demography, trend analysis and
forecasting, and social psychology, not to mention enhanced report writing and oral communication skills.
The fee appraiser's assignments are as diverse as the public itself
and may involve mortgage financing, expropriation, tax assessment,
foreclosures, estate settlement, insurance, feasibility studies, etc.
There are three main categories of
appraisal practice:
• Fee appraisers
• Institutional appraisers
• Government appraisers
More and more, the real estate appraiser is being called upon to act
as a counsellor or investment analysis consultant, rather than a
simple value estimator. As well, continual changes to federal and
provincial legislation will give rise to the need for a higher calibre of appraisal service. The traditionally
established appraisal techniques are becoming less appropriate, as appraisers find they are required to solve everchanging problems in new areas.
Institutional Appraisers
A second category of employment for appraisers includes single corporations or institutions. The role of
institutional appraisers originated during the 1930s when US insurance companies entered Canada with their
investment programs; institutional appraisers have only one client and are employed by that organization, usually
on a fixed salary. Life insurance companies, mortgage companies, trust companies, banks, utility companies,
real estate development, and manufacturing companies are typical employers.
The increase in institutional appraisers stems from the management of large corporations recognizing that welltrained and knowledgeable appraisers are helpful for dealing with the complexities of real estate. Institutional
appraisers may be called upon to determine the security for mortgage loans, advise on the purchase of
investment property, review appraisals prepared for their employer, or negotiate various property rights.
Government Appraisers
The various levels of government (federal, provincial, and municipal) are the third category of employment for
appraisers. All levels of government require real property appraisal services and often hire a contingent of fulltime appraisers. Common valuation assignments for government appraisers include expropriation, acquisition,
assessment, taxation, redevelopment, rights-of-way, and easements. In recent years, the role of the government
appraiser has in many cases shifted from that of being a hands-on appraiser completing appraisal assignments, to
that of a manager of fee appraisers under contract and a reviewer of their work.
Licensing Requirements for Appraisers
Most provinces have no legislation requiring appraisers to be licensed, meaning anyone may legally undertake
appraisal work and charge a fee for the appraisal services. Only a few provinces, Alberta, Québec, New
Brunswick, and Nova Scotia, require that appraisers be licensed in order to provide valuation services. A
number of provinces are currently reviewing the need for licensing of real estate appraisers.
In provinces without licensing, someone totally lacking in knowledge about real property markets can legally call
themselves an appraiser and make an appraisal of a property. For example, real estate agents might not consider
themselves appraisers, but they certainly carry out some degree of appraisal work when a property is listed for
sale or when advising a potential purchaser. However, the Courts may conclude that even people without formal
training as appraisers are responsible for their actions in the role of valuing real property. For example, the
Courts may decide real estate agents possess the necessary skills and training for appraisal work in their work
context, and are, therefore, legally responsible for their estimates of value.
1.5
Lesson 1
The lack of licensing requirements for appraisers does not imply that appraisal is either a new field or an area
without organization. A number of professional, quasi-professional, and private appraisal associations and
societies currently operate in Canada, such as the Appraisal Institute of Canada (AIC). The appraisal industry
effectively regulates itself through these organizations, establishing recognized professional designations
achieved through a combination of education and experience, and by enforcing codes of conduct that standardize
appraisal practice and protect professional integrity.
Organizations Governing Appraisal
Early appraisal organizations recognized the need to establish a logic, or body of knowledge, to guide
practitioners in estimating real property values and to encourage an independence of thought and action amongst
its members. The need to elevate, enhance, and improve the profession became the impetus for the formation of
many professional real property organizations as they exist today.
Appraisal organizations serve its members and the public through several means:




education programs which build competencies in the area of practice;
certification and designations which act as public guideposts as to the education and professionalism of a
practitioner;
articling/mentoring programs to bring entrants to a high standard of practice recertification or
continuing education requirements designed to maintain practitioners' knowledge and skills; and
codes of conduct to standardize practice and ensure that practitioners maintain professional integrity.
Appraisal began to be recognized as a profession in Canada in the 1930s. During the Great Depression, real
property values were in a state of flux. Financial institutions had eagerly poured mortgage money into prairie
homesteads during the booming 1920s only to suddenly inherit ownership of many idle or marginally productive
farms. As a result, land or farm inspectors began to exchange ideas, practices, and opinions once held in strict
confidence. Indeed, a study of valuation methods and their application began to develop.
In 1936, an effort was made to form a more permanent association.
This effort by several institutional western land inspectors resulted in
the formation of the Appraisal Institute of Canada in 1938. Today, the
Appraisal Institute of Canada (AIC) is the dominant appraisal
organization in Canada.
The Institute has two professional designations: (1) CRA (Canadian Residential Appraiser) which allows the
member to appraise undeveloped residential sites and dwellings containing not more than four self-contained
housing units; and (2) AACI (Accredited Appraiser Canadian Institute), which indicates experience in a full
range of properties. For more information, refer to the Institute's website at www.aicanada.ca.
Other real estate appraisal organizations also exist across Canada and internationally. These include:






1.6
L'Ordre des Évaluateurs agréés du Québec (The Institute of Chartered Appraisers of Québec)
www.oeaq.qc.ca
Canadian National Association of Real Estate Appraisers www.cnarea.ca
Real Estate Institute of Canada www.reic.ca
Appraisal Institute (USA) www.appraisalinstitute.org
American Society of Appraisers (USA) www.appraisers.org
Royal Institution of Chartered Surveyors (UK) www.rics.org
Real Property and the Nature of Value
There are also organizations that focus on valuation in the context of real property assessment
for property taxation purposes. The International Association of Assessing Officers (IAAO) is
a US-based association which focuses on appraisal for property tax purposes (www.iaao.org).
The IAAO designations include the CAE (Certified Assessment Evaluator) and the RES
(Residential Evaluation Specialist). Similarly, the Institute of Municipal Assessors (IMA) is an
Ontario-based organization focussed on property tax valuation, with the designations MIMA
and AIMA (www.assessorsinstitute.ca).
Many provinces in Canada have associations linked to the national organizations listed above.
For example, in BC, the Real Estate Institute of BC (REIBC) is a multi-disciplinary real estate
association which has a strong appraisal contingent. Its designation is RI (www.reibc.org). The
Appraisal Institute of Canada has provincial associations and local chapters in most major
cities across Canada.
Appraisal institutes throughout the world are providing a high quality infrastructure of education, examinations,
discipline, liability insurance, research, and administration for its members. They are establishing uniformity in
education and setting requirements for proficiency, ethics, conduct, and practice, with standards clearly
delineated and defined. Inappropriate conduct can result in disciplinary action by the institutes in the form of
admonishment, reprimand, censure, suspension, and ultimately expulsion.
Appraisal Standards
Most professional appraisal organizations adhere to a code of conduct to guide the profession and to ensure that the
public and members are well-served. In the United States, the Appraisal Foundation led to the development of the
Uniform Standards of Professional Appraisal Practice (USPAP). In Canada, the AIC has adapted USPAP into the
Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP, or commonly called "the Standards").
The Canadian Standards are available for download from the Appraisal Institute of Canada's website (linked from
this course's Online Readings webpage). The Canadian Standards have simplified and consolidated USPAP into one
document so that it is more easily understood and applied by all stakeholders in appraisal practice.
The Canadian Uniform Standards cover four areas: Ethics, Appraisal, Review, and Consulting. Each has their own
set of standards that appraisers must follow when completing assignments.
The Ethics Standard deals with the conduct of members regarding the public, the Institute, or the real property
appraisal profession. This standard details unethical situations a member should avoid. The Appraisal Standard
"deals with procedures for the development and communication of a formal opinion of value, incorporating the
minimum content necessary to produce a credible report that will not be misleading". This standard is perhaps the
most important because it affects the majority of appraisers who complete appraisal assignments. The Review
Standard reviews the steps necessary to follow when reviewing an appraisal done by another appraiser. The
Consulting Standard "deals with the procedures for the development and communication of real property consulting
service and incorporates the minimum content necessary to produce a credible result that is not misleading".
Globally, there exists the International Valuation Standards Committee (IVSC). The IVSC has 45 member
countries, including Canada and the United States, plus an additional 10 countries who hold observer or
correspondent status.
According to the IVSC website, its purpose is:
to formulate and publish, in the public interest, valuation Standards and procedural guidance
for the valuation of assets for use in financial statements, and to promote their worldwide
acceptance and observance. The second objective is to harmonize Standards among the world's
states, and to make disclosures of differences in standards statements and/or applications of
1.7
Lesson 1
Standards as they occur. It is a particular goal of IVSC that international valuation Standards be
recognised in statements of international accounting and other reporting standards, and that
Valuers recognise what is needed from them under the standards of other professional
disciplines. www.ivsc.org
First Principles of Value
There are a variety of real property valuation disciplines, including valuation, use strategies, feasibility studies,
litigation strategies, academic pursuits, forecasting and strategic implementation. A common thread in each real
property discipline is the need to understand the interrelationships between forces of economics, law and the
marketplace on real property. The reliance on various principles allows for a focussed and disciplined approach
to the requisite analyses and interaction between the various tangents that real estate consultants may pursue.
The Appraisal Institute of Canada (AIC) has defined the "First Principles of [Property] Value". The AIC has
also produced a companion document entitled "Professional Competencies". These documents can be viewed by
going to the AIC's website at www.aicanada.ca and then doing a search of these document titles. In order to
achieve the use of one of the Institute's designations, the candidate must have experience, and be proficient, in
these First Principles of Value, and be able to demonstrate ability in the defined competencies.
The First Principles of Value are:








Property Content
Property Rights
Function/Purpose
Highest and Best Use
Land Use Regulations
Economic Variables
Legal Issues
Research
The Appraisal Institute of Canada has
defined the "First Principles of Value"
and "Professional Competencies".
Candidate members of the Institute must
have experience, and be proficient in, the
listed principles and competencies.
The required professional competencies are:





Market Analysis
Integrity
Critical Thinking
Relationship Building and Communication
Self Development
Future Trends in Appraisal
The real estate industry continues to become more complex and advanced education is increasingly important.
The pressure for higher standards will continue to build, thus making continuing education a long-term
commitment. Real property appraisal in Canada is self-regulating with no licensing requirements (there are some
provincial exceptions). In order to continue to allow this, governments will require evidence of advanced
education. Research and development of new ideas and theories must receive much more emphasis. It is crucial
to look beyond the current nature of appraisal and attempt to foresee the requirements of the profession in the
future.
1.8
Real Property and the Nature of Value
This completes our brief introduction to the real property appraisal profession in Canada. The lesson now moves
on to discussing the first two chapters in the assigned textbook, examining issues of what is meant by "value",
and the theory which underlies appraisal practice.
Before proceeding on to the "Reading Notes" below, students are recommended to read the article "Real Estate
Management and Brokerage and their Importance to Appraisal", found on the BUSI 330 Course Resources
webpage under "Online Readings". This article examines the closely related disciplines of property management
and real estate brokerage. Appraisers often work closely with representatives of each. Property managers have
day-to-day experience and information on income and expense data for a variety of building types that are vital
to any appraisal. Real estate brokers are involved with trading in the market and thus have the pulse of current
trends which are crucial to any appraisal.
Reading Notes
The following notes supplement the readings specified for this lesson. These notes are intended to provide
additional instruction, further examples, and different perspectives on what you have read in order to enrich the
course readings. Notes are provided on each chapter in turn, generally following the same headings as provided
in the Course Manual.
Chapter 1 – Real Property and Its Appraisal
The introduction to this chapter makes a comment that land is durable, meaning that in general the benefits of
land are expected to last indefinitely. However, students should be aware that land can be destroyed or severely
modified due to human and natural forces. Human forces could be contamination or major removal of the land.
Natural forces could include flooding, earthquakes, or natural erosion of river, lake, or seashores.
Concepts of Land – Four Forces Affecting Land Valuation
It is important for students to be aware of how physical, economic, government, and social forces affect real
estate values. This can be achieved by reading current publications and keeping up-to-date on all events that
affect a community and ultimately affect real estate values.
Physical – Geographic and Environmental
Values can fluctuate due to weather and climatic conditions: e.g., excessive
rains or long hot dry spells which can affect both urban and rural land uses.
New road patterns can open up lands that previously had little value and
affect the value of existing land: e.g., many cities and towns which have
new shopping malls constructed on the outskirts of their city limits, or the
relocation of a highway around a town which can affect the downtown
business core as people now drive around rather than through a town.
Values are constantly changing, declining in one area and increasing in
another.
Forces Affecting Real
Estate Value
•
•
•
•
Physical
Economic
Government and Legal
Social
The text mentions some of the possible uses of land. One that is often overlooked is to leave land in its natural
state, whether a small piece of land in a neighbourhood or a large multi-hectare site in the province. Wilderness
parks are becoming popular with more being created to satisfy the public outcry against development. Today,
some owners are willing to sell their islands or large tracts of land to the governments for parks, in particular if
they can obtain some tax advantage.
1.9
Lesson 1
Economic
Statistics Canada studies show that our income rose significantly in the early 2000s as compared to the early
1990s. How did this affect real estate in your area? Another article indicates that Canada is losing its
attractiveness for foreign investment because of our high tax rates and slow economy. How might the relative
worth of the Canadian dollar against other currencies affect this?
Government and Legal
Government activities (federal, provincial, municipal, and First Nations) can affect real estate values, so you
must become aware of how their decisions, either positively or negatively, impact values in your area. For
example, the closure of the cod fishery in the Maritime Provinces has had a strong deleterious effect on property
value in many communities. US lumber tariffs will have a negative impact on employment in BC's forest
industry, which will in the long term affect property values.
Students should also be aware of community plans showing how development will proceed in the future.
Governments at all levels have enacted legislation to protect certain lands from development or to limit
development on them. Students should be aware of these pieces of legislation and their effect on property values.
Searching the title of the property will indicate if there are any easements, access restrictions, use restrictions, or
other charges registered against the title and which could affect the property's value.
Social
Try to understand how the country and your community are changing due to immigration/emigration, population
shifts, etc.
Social activist groups, either local or international, can affect the development of land. Governments and local
neighbourhood organizations often have a different view on how available lands should be developed. It is
prudent to consult with these groups to obtain their views on the development or redevelopment of certain lands.
As an appraiser, you will need to understand how and why people desire things and how they apply a value to
them. What are their motivations? Secondly, you need to be aware of external forces that affect property values.
Appraisers are constantly collecting data, refining and defining it, and mentally filing it away until it is required.
Our job is to use this data to help estimate what a property might be worth as of a certain date.
Real Estate, Real Property, and Personal Property
In consideration of the nature of property and land, it is essential for the appraiser to understand what is to be
valued and the significance of certain terms used in the appraisal industry. The appraiser must describe in detail
the physical and legal components of the property being appraised. If these are not properly analyzed and
explained, then the subsequent value estimate will be incorrect.
Appraisers need to be aware that in addition to appraising the physical components of a property (land and
improvements), they must also consider the rights which are attached to that property. In some cases, financing
considerations can impact a property's selling price and it is the appraiser's job to determine if any unusual
financing has affected the selling price, either by increasing or decreasing it in relation to the definition of
market value.
The legal concept of land refers to the unrestricted use of the earth's surface and everything above and below. In
other words, land ownership is like an inverted pyramid with the apex at the centre of the earth and extending
upwards to the heavens. However this concept is limited by statute in that governments usually limit how deep
1.10
Real Property and the Nature of Value
and how high we can build buildings. Aeronautic legislation will permit planes to fly over your property, so this
limits your control over the air space.
The term "Real Estate" refers to a physical entity that is immobile
and tangible, such as land or improvements. Examples of natural
improvements found on a property include trees and minerals.
Improvements made by humans include buildings and landscaping,
things we can see and touch.
Real estate is the physical thing. It
cannot be appraised or sold.
Real property is the rights in realty.
Real property cannot be touched, but
can be appraised and sold.
The term "Real Property" refers to the rights attached to real estate
Personal property is tangible, but not
which are intangible and which we cannot see or touch. However,
affixed to the real estate.
they are present and they can affect value, particularly if they
affect the use of the land or real estate. For example, a lease or an
easement is real property, even though they are not tangible – they are commodities which can be bought and
sold. Another example of this is the transfer of air rights, such as the church in downtown Vancouver which sold
its unused air rights to the owner of an adjacent property in order to allow a higher density in redevelopment of
this adjacent property for an office building. The term real property is inclusive, that is, it includes all of the
rights that can attach to land.
The packaging of all the rights of ownership attributable to a property is called the "Bundle of Rights".
However, these rights may be limited to some extent, usually through applying government legislation. As a
result, there is no such thing in Canadian real property ownership as complete freedom to use your property the
way you want to use it. It is always important to search the property's title to see if any of the rights have been
impaired. Impairment could be in the form of a lease, a right-of-way over the property, restrictive covenants, or
easements. If any of these are present, then the appraiser has to investigate them to see what impact they have on
the value of the property. This would affect which properties could be considered "comparable" to the subject
property.
Characteristics of Real Property
The general principles of economics apply to the real estate market; however, the unique characteristics of
improved land must be taken into consideration to understand how the market operates. The significant
characteristics of improved land are its immobility, the durability of its improvements, the indivisibility of the
services it provides and the divisibility of ownership it allows.
Immobility
Land, as space on the surface of the earth, is immobile; for
example, the supply of serviced lots in Toronto cannot be
increased by additional lots from Ottawa. The immobility of real
estate as a commodity prevents moving it to a better market. One
city may have a large number of vacant rental apartments at a
time when there is a very low vacancy rate in another city.
Landlords can only sell their product (shelter) in the market
within which the property is physically located.
Characteristics of Real Property
•
•
•
•
Immobility
Durability of improved land
Indivisibility of services
Divisibility of ownership
Immobility is responsible for the local nature of real property markets. The forces of demand and supply in real
estate markets are determined by the conditions which exist in each local region; transactions in one market area
have little impact on transactions in another area. However, these unique and independent regional markets are
not isolated from the overall economic environment of the country. Changes in national and provincial economic
conditions, or legislative changes, may affect property markets by altering the economic or legal environment in
which the participants of each local market operate.
1.11
Lesson 1
Since users of land must travel between separate parcels of land in order to take advantage of the services which
each immobile parcel of land can provide, location is very important in determining values of improved land.
The better the location in terms of ease of travel within the entire community, the higher the value of the land,
all other things being equal. The savings in travel cost (both dollars and time), are reflected in the higher value
of the land to its users.
Development. The relationship between location, land use, and land value is reflected in the history of the
development of our communities. People are typically first attracted to a particular location because of the
natural qualities and resources of a site. Climate, water supply, water frontage, soil fertility, and mineral
deposits are examples of such locational attractions. Harbour facilities, railways, and highways are examples of
man-made amenities which follow, providing transportation to link locations and assist in their development. The
growth of cities and towns begins in this manner.
Within the city, certain districts become preferred for certain uses depending on their distinctive qualities.
Industrial areas grow around a waterfront or railway; residential areas become valuable as a result of a view,
protection from adverse weather, or because they are located on the windward side of the smoke and odours
produced in the industrial areas; retail and business districts are established in areas which are convenient to
serve the needs of the inhabitants.
However, as growth continues, the development which was the result of certain features becomes the cause of
subsequent development and value; that is, a location becomes identified with a land use and real property values
are determined according to suitability for that use. Residential property, whether vacant lots, houses, or
apartments, is valued by market participants after considering the quality of surrounding developments and
proximity to shops and bus routes, while commercial properties are valued according to surrounding
developments, transportation and parking facilities.
Supply of Urban Land. The immobility of land means that the amount of land, in terms of the surface of the
earth, is fixed within any community. It is often argued that real property markets are unique for that reason.
While the total physical supply of land on the surface of the earth is limited, this is not of any great importance
to the operation of real estate markets. In most urban areas, the opposite is the case; there is almost no limit to
the supply of land for urban use. The supply of urban land can be increased by bidding land away from adjacent
non-urban activities such as farming.
Urban growth is generally the result of the conversion of land from rural to urban uses through the actions of
real estate developers. The primary motivation for such expansion is economic: farmers will sell to developers
when they can get more for the land than it is worth in its agricultural use. In this way, agricultural land values
set a floor to urban land values; the urban use must create a land value just higher than the farm value to induce
a shift from one use to the other. Over time, urban land values can rise to be much higher than the original farm
value. As long as farmers sell to developers who plan to subdivide there is no effective limit to the physical
supply of land available for urban expansion. Zoning restrictions impose a legal, rather than a physical or
economic limit; if more land is required for a particular purpose in an area, it can only be made available by
converting land from some other use. The value of land is directly related to its use.
Instead of occupying more physical space, it is possible to intensify the use of sites. This occurs when zoning
regulations are modified to permit a greater degree of multi-storey development. The first development of a
vacant city lot might be a house. Many years will pass before this single-family residential area will change in
character, but it is quite possible that expansion of the city may make this district suitable for apartments/
condominiums. The increasing demand for apartment/condominium sites will probably cause the lot value to rise
to a point where it exceeds the value of the property in its use as a single-family dwelling. If zoning constraints
allow, the site may then be purchased by a developer who plans to demolish the house and redevelop the
property to an apartment use.
1.12
Real Property and the Nature of Value
Similarly, the supply of building sites can be increased by using previously unsuitable sites; for example, older
industrial/commercial sites filling in lakes, swamps and bays provides more building sites. Finally, greater speed
and efficiency of transportation makes sites that were previously too distant now suitable for urban development.
In conclusion, the fact that the land area in a region is fixed does not imply that the supply of space for urban
activities is equally fixed. Thus the old expression, "Buy land! They're not making any more!" does not fare
well under closer examination.
Durability of Improved Land
A second important characteristic of real estate is the indestructibility of space and the durability of structures.
While it is true that the owner of the fee simple holds eternal title to the property (subject to the Crown's rights),
the space may become useless and lose its economic value. Farms which have lost their fertility, and "ghost
towns" in abandoned mining areas provide examples of space that is currently worthless but once sold at
premium prices. In other words, although land lasts forever, its value does not.
Manufactured improvements to urban land are not indestructible. Eventually, streets erode, pipes rust, sidewalks
deteriorate, and office buildings and houses decay; nonetheless, these improvements are extremely durable. New
housing units are only a small portion (seldom more than 1%) of the real property in use in any year. The
existing stock of real property makes up almost all of the market at any one time. Any new units must, therefore,
be developed in an urban area which is made up of several decades of individual real estate development
decisions. The profitability of development of new property depends on current costs and market conditions
which are determined by current demand and the existing stock of real property.
When considering the durability of structures, it is important to distinguish between the physical life and the
economic life of the structure. Buildings may be demolished long before they have physically worn out to make
way for a different class of development. This indicates that the value of the land and buildings for the old use is
less than the value of the land and building, or of the land alone, for the proposed new use.
Real estate is a source of shelter. The shelter afforded by real estate, like other services, cannot be stored and
must be in continuous production. An unoccupied building or a site which is seriously under-used is a waste of a
scarce resource. The physical durability of real property, however, means that it has value as an investment and
also as a source of shelter, freeing the owner from the need to pay rent. An owner-occupier of a house can value
both the stream of consumer services the house provides and the potential for an increase in the value of the
property in the form of a capital gain.
Indivisibility of Services
The value of a parcel of real property ultimately depends on its usefulness. This usefulness is based on the land
and improvements such as buildings, sidewalks, landscaping, underground, and aboveground utilities. The
offsite improvements, including transportation amenities, utility systems, adjacent land uses, and views also help
to determine the usefulness of land. Elements of value cannot be separated into those derived from the land, the
buildings, or the landscaping, since users regard the site as a single unit. This is reflected in the law of real
property, where "land" includes the surface of the earth and all permanent improvements attached to it.
In some cases however, land and improvements are considered separately. North American real estate taxes
usually assess land and improvements (buildings) separately. In the case of the commercial investor, splitting the
value of the land from the value of buildings is done for income tax purposes. Other circumstances in which land
and improvement values are considered separately include determining the cost of replacing a structure if it is
destroyed, or when considering redevelopment of existing improvements.
1.13
Lesson 1
Divisibility of Ownership
The ownership of a single parcel of real estate may be divided both physically and legally. For example,
ownership of real property can be physically divided by creating separate interests in land; that is, establishing
either horizontal or vertical boundaries. A standard subdivision into several serviced lots zoned for singledetached residential is one example of horizontal division of ownership; a subdivision into individually-owned
apartments in a high-rise condominium project is a vertical division of ownership. A property owner may even
sell the rights to the use of airspace above his or her property, another example of ownership which is divided
vertically.
Legal ownership of property may also be divided. For example, in strata developments, owners have exclusive
rights to their own condominium suite but share the ownership of common areas (i.e., garden, hallways, pool)
with all others in the development. A second example arises where a real estate owner rents property to a tenant
who may then rent or sublet it to someone else, creating three different interests in the same property. Finally,
legal ownership can be divided through different types of ownership of one interest in land. For example, several
investors may form a partnership to invest in real estate, or a company may be formed to buy real estate and
shares in the company issued to individual investors. In these cases, the investor has an indirect interest in real
property; he or she does not directly own a particular piece of property but instead owns units in a partnership or
shares in a company which, in turn, directly owns the property.
Divisibility of ownership is a very important characteristic of real property as it allows a large dollar value asset
(real property) to be broken down into smaller units of ownership; hence, small investors are able to participate,
and the opportunities to diversify (to buy a little share in many investments rather than tie up all of an investor's
capital in one investment) are increased.
Fixtures and Chattels
Property can be classified as either fixtures or chattels. Appraisers do not value chattels, as these can be removed
easily. Fixtures are included because they are attached and form part of the real estate.
In many cases, the sale of a residential property includes personal property or chattels such as a stove, fridge, or
washer and dryer. The used value of these items is usually small in relation to the total sale price of the property.
Therefore, they are not normally considered in an appraisal.
However, in some cases the personal chattels included in the sale might
be substantial. For instance, if a sale included expensive rugs or a set
Chattel – personal property
of furniture, these might be significant enough that they would warrant
consideration. The appraiser should always ask if any personal
property was included in the sale and, if so, what its negotiated value was. The same question should be asked
when investigating comparable sales: "What was included in the price?" If the personal property is quite
substantial, then a separate valuation may be required by an expert, e.g. an equipment specialist or an
auctioneer. It is always a good idea to confirm with one or even two people who were party to the transaction if
there were any fixtures or chattels included in the selling price and if so their approximate value.
Fixture – part of the real estate
In most situations involving a sale of land, the contract of purchase and sale expressly identifies those items
included in the purchase price and those items which the vendor can remove when he or she vacates. Accordingly,
there is generally no confusion as to the property rights of the vendor and purchaser upon completion. However,
when a contract of purchase and sale does not expressly identify those items which a vendor can keep upon
completion, it may sometimes fall to the court to establish which party owns what property.
When determining the property rights of a purchaser or vendor in a sale of land, the courts distinguish between
fixtures and chattels. Items that are fixtures go with the land and will belong to the purchaser upon completion,
while chattels remain the personal property of the vendor.
1.14
Real Property and the Nature of Value
To decide whether an item is a fixture or a chattel, the courts have adopted a general twoCpart test. The first
aspect of the test has to do with the degree of affixation. The case of Stack v. Eaton established that articles
attached to the land merely by their own weight will, in the first instance, be considered chattels unless
circumstances show that they were intended to be part of the land. On the other hand, articles which are affixed,
even slightly, will be considered to be fixtures unless circumstances show that they were intended to be chattels.
The second aspect of the test concerns the purpose of affixation. Where an object is affixed for the better use or
enjoyment of the object as an object, it will be considered a chattel. Where the object is affixed in order to
enhance the land to which it is affixed, the object will probably be considered to be a fixture.
Let us consider an example where these rules would be applied.
Example
Smith, an owner of real property, agrees in writing to sell to Jones. No mention is made in the
agreement concerning the two valuable pictures hanging from screws in the front living room. When
Smith vacates, he takes the pictures with him. Jones thinks that these pictures were included in the
selling price and wants to sue Smith.
In deciding who is entitled to the pictures, a court hearing the matter would consider the issue as follows:
1. The pictures were barely attached to the wall and were merely hung on a screw. The degree of
affixation is extremely slight; however, because they are affixed, the first presumption at law is that
these pictures are fixtures.
2. Was the purpose of affixation to better enjoy the pictures as pictures or were the pictures affixed in
order to enhance the real property as such? This test is an objective test, and does not depend on what
the person affixing the object says was the purpose. In this case, the object is probably to better enjoy
the pictures as chattels, rather than to improve the real property. Another relevant factor is what effect
removal of the object has on the real property. Here the pictures could be removed simply and with
virtually no damage.
As a result, the conclusion would be that the pictures are chattels. As such, they would not form part of the real
property. The vendor, Smith, was entitled to remove the pictures when he left.
It is clear that these tests are highly subjective in their application and the cases on the distinction between chattels
and fixtures are often difficult to reconcile. For this reason, it is always prudent to specify in writing in the contract
of purchase and sale whether or not any questionable items will pass with the property. By expressly agreeing
between themselves, the parties can avoid these common law principles and decide the matter conclusively.
Appraisal Reporting Options
Simply stated, an appraisal is an estimate, or opinion, of value.
Appraisals may be delivered orally, or in writing. There are
generally three types of written appraisal reports narrative, short
narrative, or form.
Purpose and Intended Use of an Appraisal
Every appraisal must state the purpose of the appraisal and the type
of value to be found by the appraiser. This will dictate the type of
research that the appraiser must undertake to arrive at this value.
Chapter 2 will discuss in detail the various types of value that an
appraiser can find.
Appraisal Reporting
• Oral
• Written
• Self-contained appraisal reports
(Narrative)
• Summary Appraisal Reports
(Short Narrative or point form)
• Restricted use appraisal reports
(Form or other)
1.15
Lesson 1
The use of the appraisal is determined by the client's needs and the appraiser must be aware of these before
undertaking the appraisal, as this will determine the type and amount of work and the fee to be charged. In many
cases, it is advisable to have a letter of understanding between the client and the appraiser in order to avoid any
misunderstanding as to what is required, the date of delivery of the report, the fee to be charged, and any other
limitations or requirements.
Appraisal Liability
The Appraisal Institute of Canada has a Professional Liability Insurance Program (PLIP) which is mandatory for
AIC members. The PLIP affords a level of protection for both the general public and AIC members by providing
liability insurance for negligent errors and omissions related to the professional services provided by members.
For more information on these topics, students should refer to the various brochures AIC produces for these
programs.
Chapter 2 – The Nature of Value
Factors of Value
The four factors of value are: utility, scarcity, desire and effective
purchasing power. Utility and scarcity are supply factors. Desire and
effective purchasing power are demand factors. Utility is the ability of a
product to satisfy a human want, need or desire. Scarcity refers to the
present or anticipated undersupply of an item relative to the demand for it.
Desire relates to a purchaser's wish for an item to satisfy human needs or
individual wants. Effective purchasing power is the ability of an individual
or a group to participate in the market, to acquire goods or services with
cash or its equivalent.
Factors of Value
 Supply
 Utility
 Scarcity
 Demand
 Desire
 Effective Purchasing
Power
The value of air can be used to illustrate the concept of "scarcity". Air is needed by humans for survival, so it
obviously has utility. However, because there is no scarcity, there is no effective demand and it has no value in
an economic sense. If scarcity for breathable air can be created, only then can the market establish its value;
e.g., the "oxygen stations" in Tokyo which sell oxygen to commuters who are concerned about air pollution
problems. A similar example is the incredible rise in sales of bottled water in Canadian cities.
Also note that demand can be effective in creating value for a product only if those demanding the product have
the ability and means to purchase it and to transfer ownership from one party to another.
The History of Value Theory
Traditionally, a significant majority of appraisal assignments in Canada have focussed on market value.
However, it is important to understand that the term "value" is a much more complex economic concept. There
are a number of different types of value that may be appropriate in a given context or assignment. Accordingly,
it must be recognized that "value" is never a fact, but always an opinion of the worth of a property at a given
time, in accordance with a specific definition of the term.
It is important to understand the definition of "value". There are many alternative interpretations of what value
can mean. For example, look up value in a dictionary. The Concise Oxford Dictionary lists numerous definitions
ranging from "the amount of money or goods for which a thing can be exchanged in the open market" to
"something well worth the money spent". When someone pays money for a product, they are buying the present
worth of future benefits of that item, whether it be a house, car, or cup of coffee. The value an individual
assigns to a given item is subjective and exists in our mind and our mind only. Objective value is usually the cost
to create the product and often has no relation to subjective value.
1.16
Real Property and the Nature of Value
Furthermore, this conception of value can change over time, whether seconds, hours, or years. Try to relate this
concept to things you have wanted or have recently bought. Why did you want that item and why were you
willing to pay the price you did? The price we are willing to pay is an implicit indication of how we measure the
value a good has to us – subjective value. In other words, we are prepared to give up our hard-earned dollars to
purchase something to satisfy an internal desire that will benefit us over some future time period.
Buyers and sellers determine what an item is worth to them based on their own personal needs and desires. It is
what sellers are prepared to accept in exchange, usually dollars, that determines the price of an item.
Value is determined by the market as a whole and therefore appraisers must understand the operations of the
markets in their local area, be it housing, the retail sector, or heavy industry.
It is important to remember that appraisers only estimate value based on their observations of the real estate
market. The better informed you are, the better will be your opinion of what things are "worth".
Distinctions Among Price, Cost and Value
Market Value vs. Market Price
Remember that "one sale does not make a market" because some sales may not represent typical transactions,
such as non-arm's length sales, chattels included in the sale price, or non-typical financing. This is why it is
often necessary to investigate the motivation of the parties involved and to also verify the accuracy of the sale
price with one of the parties.
Market Value vs. Cost
Keep in mind that cost does not equal value, since it is the market which determines what an item is worth. This
value could be more or less than the cost.
Relationship of Price and Value: Subjective Versus Objective Value
Appraisers are concerned with a value that can be
measured in terms of money. This raises the question of
whether value is the same as price. For example, if an
item is sold for $5, is this its value? Or is value
something different from price? Consider a person who
has decided to sell their house. They will probably not
sell at any price, but only if they receive at least a
certain minimum amount. This minimum price will
depend on how anxious they are to have cash.
The owner's minimum price, called the floor price, is
the lowest sum of money which they are prepared to
accept to sell the house. A prospective buyer will have
a maximum price that they are prepared to pay for the
house which is called their ceiling price. This means
that for a sale to occur, there must be at least one
potential buyer who is prepared to make an offer
(ceiling price) equal to or greater than the present
owner's floor price. In some cases, the ceiling price is
much greater than the floor price, which makes it
easier to negotiate a sale.
1.17
Lesson 1
Suppose the seller's floor price is $300,000 and the buyer's ceiling price is $325,000. In negotiating, each will
try to obtain the most favourable sales price. The seller is likely to start by asking a higher price than they are
prepared to accept and they might even ask a price greater than any ceiling price; the buyer will make a
counter-proposal and the negotiations will ensue. Eventually a price is agreed on which is referred to as the sale
price, or value in exchange. For the purpose of the example, assume that the house sold for $310,000.
In this transaction, there are now three amounts or "prices" (as shown in Figure 1.1) which can be related to
value. Two issues should be noted from this transaction:
1. The seller is not likely to know the buyer's ceiling price and the buyer is usually unaware of the seller's
floor price. This is the reason for negotiating the sale price.
2. The actual sale price they negotiate will depend on their negotiating skills and how anxious they are to
complete the transaction. If the seller has difficulty in finding a buyer, they may be willing to sell the
house near or at their floor price. On the other hand, if they have just advertised the house for sale in
the market and the first buyer has made a very low offer, they may be willing to wait and see if
someone else will make a more attractive offer.
Figure 1.1: Illustration of "Prices"
Ceiling price = $325,000
Highest price the buyer will pay.
Sale Price = $310,000
Negotiated price between the buyer and the seller
Floor Price = $300,000
Lowest price the seller will accept
Returning to the prices in the house example, which of the three prices represents "value"? The floor and ceiling
prices represent value to the seller and buyer, respectively, but the sale price is frequently different from either
amount. In this transaction, the house had a sale price of $310,000 while the ceiling price for one potential
owner was $325,000 and the floor price for the present owner was $300,000.
In appraisal, floor and ceiling prices are referred to as value to the owner where "owner" is used to also include
a prospective owner.
Value to the owner, which includes floor and ceiling prices, is a subjective measure of value; it reflects the
particular characteristics of a person. It is extremely difficult for a third party to determine the subjective value
another person gives to a property. Fortunately, appraisers are not asked to determine value to the owner very
often. Instead appraisers are typically called upon to estimate objective values, with the most common being
market value. Value in exchange from Figure 1.1 could be classified as an objective value B unlike floor and
1.18
Real Property and the Nature of Value
ceiling prices, value in exchange is not dependent on one individual's tastes and preferences, but on the
negotiations between several persons and an objectively verifiable transaction price.
While determining value to the owner (subjective value) is not a common appraisal problem, the concept remains
important to the understanding of the process surrounding a sales transaction and how the sale price is
established. In order for a sales transaction to occur, sale price must be at least equal to or more than the
vendor's floor price (value to the owner) and at most, equal to or less than the purchaser's ceiling price (value to
the owner). These two concepts of value (sale price and value to the owner) play a central role in the appraisal
process.
Appraisers may be called upon to find a subjective investment value for one particular investor. The appraiser
will account for the specific owner's tax status and the financing position to calculate a justified investment price.
This value to that individual investor may not necessarily represent market value.
Types of subjective values that may be requested in appraisal reports include:


Investment Value – an entity-specific basis of value. Investment value reflects the circumstances and
financial objectives of the specific entity for which the valuation is being produced. It is often used for
measuring investment performance. Differences between the investment value of an asset and its market
value often provide the motivation for buyers or sellers to enter or exit the market place.
Special Value – is an amount that reflects the particular attributes of a real property asset that are only
of value to a special purchaser.
Types of Objective Values Found in Appraisals
In appraisal terms, an objective value refers to a number based on market evidence and that could be verified by
a third party B as opposed to a subjective value that is completely hypothetical and based on the personal tastes,
preferences, or biases of one specific individual. An appraiser can readily estimate an objective value, but is
hard pressed to accurately determine a subjective value. How can an appraiser possibly get inside one
purchaser's mind to determine what a property is worth to them specifically? As a result, appraisers tend to be
called upon to estimate objective values.
The concept of objective appraised values relate to accounting's "objectivity principle".
The objectivity principle states that accounting will be recorded on the basis of objective evidence. Objective
evidence means that different people looking at the evidence will arrive at the same values for the transaction.
Simply put, this means that accounting entries will be based on fact and not on personal opinion or feelings
(Generally Accepted Accounting Principles, or GAAP).
The objective appraised values are generally identified by the use of prefixes such as insurable value, lending
value, taxable value, actual (assessed) value, and market value. The following lists and defines some of the most
common of these:

Assessed Value (actual value) – a value set on real estate and personal property by a government as a
basis for levying taxes. The specifics of this value are usually defined in provincial or civic legislation
and varies significantly in different jurisdictions. Some jurisdictions use market value, and others may
use a historic value or historic cost. It is necessary to read the definition section of the appropriate
statute to understand how the assessed value is derived and what factors are considered in determining
that value. Excerpts from the assessment legislation for various provinces and territories can be found
under "Canadian Assessment Legislation" in the "Online Readings" section of the BUSI 330 Course
Resources webpage.
1.19
Lesson 1

Book Value – accountants list assets at their purchase price or cost of construction, with separate values
shown for land and buildings. Over time, the original amount is reduced through depreciation, and
modified by adding the value of any capital improvements B those that increase the value of the property
or extend its remaining economic life.

Broker Price Opinion – is an opinion of value from a broker, where a lender believes the time and
expense of an appraisal is not warranted (U.S. term).

Fair Value – is the estimated price for the transfer of an asset or liability between identified
knowledgeable and willing parties that properly reflects the respective interests of those parties.

Going Concern Value – this value is tied to the business operation itself. For instance, a building
specifically designed for a franchise drive-through restaurant may have little or no value to another
company that wants the site for a different franchise operation or different use.

Hypothetical Value – (e.g., "as if complete", assumed rezoning, etc.) may be used when required for
legal purposes, for purposes of reasonable analysis, or for purposes of comparison. One common
hypothetical condition is to include a proposed improvement, e.g., "as if complete". When appraising
improvements "as if complete" that are proposed, or under construction or renovation, one must
examine and have available for future examination, plans, specifications or other documents sufficient to
identify the scope and character of the proposed improvements. Also needed is evidence indicating the
probable time of completion of the proposed improvements, and reasonably clear and appropriate
evidence supporting development costs, anticipated earnings, occupancy projections and the anticipated
competition at the time of completion. In accordance with the Canadian Uniform Standards of
Professional Appraisal Practice (CUSPAP), for every hypothetical condition, an extraordinary
assumption is required in the report.

Insurable Value – typically, this refers to the undepreciated cost of replacement of the subject
properties, required for property insurance (or claims of loss) purposes.

Lending Value – the value established to support the mortgage financing of property. Often, the lending
value is expressed as a percentage of market value, and establishes the upper limit of funds that a
mortgagee would be prepared to lend.

Limited-Market and Special-Use Properties – an example of a limited market is Crown land that a
government wishes to sell or lease. Often it is isolated land, possibly without good road access, but
highly desirable for recreational use, either residential or commercial. How does a government value it
when comparable properties do not exist or the comparables are previous sales by the Crown? Typical
arm's-length sales will have to be used with adjustments made to reflect any special circumstances. Not
an easy process, but it is possible to arrive at a value that is acceptable by all parties.

Liquidation Value – is the most probable price that a specified interest in real property is likely to bring
under all of the following conditions:
1. Consummation of a sale will occur within a severely limited future marketing period specified by
the client.
2. The actual market conditions currently prevailing are those to which the appraised property interest
is subject.
3. The buyer is acting prudently and knowledgeably.
4. The seller is under extreme compulsion to sell.
5. The buyer is typically motivated.
6. The buyer is acting in what he or she considers his or her best interest.
7. A limited marketing effort and time will be allowed for the completion of a sale.
1.20
Real Property and the Nature of Value
8. Payment will be made in cash in US dollars or in terms of financial arrangements comparable
thereto.
9. The price represents the normal consideration for the property sold, unaffected by special or
creative financing or sales concessions granted by anyone associated with the sale.
This definition can be modified to provide for valuation with specified financing terms.

Quick Sale Value (Forced Sale Value) – is a value resulting from a sale under compulsion, often
involving a mortgage holder under a foreclosure, where the marketing period is abnormally short.

Synergistic Value – is an additional element of value created by the combination of two or more
interests where the value of the combined interest is worth more than the sum of the original interests.

Taxable Value – the value established and defined by governments for tax situations, such as for estate,
capital gains or gift tax purposes.

Value in Use/Use Value – is the value of a property as it is currently used, not its value considering
alternative uses. This definition of value may be used where legislation has been enacted to preserve
farmland, timberland or other open space land on urban fringes.
Although the foregoing presents a brief review of various definitions
of value, it is certainly not a comprehensive list. From an appraisal
perspective, while there are many different definitions of value,
there is one common element that they all share – the appraisal
report cannot be misleading. From this perspective, regardless of
the definition of value, the given definition of value is always
critically linked to an exposure period. In order to form an opinion
of value, the appraiser must identify and qualify the specific
definition of value. CUSPAP also requires that the source of the
definition of value be identified.
Whatever definition of value is being
requested in an appraisal report, the
report cannot be misleading and,
according to CUSPAP, the appraiser
must identify and qualify the specific
definition of value and state the
source of the definition.
The type of value appraised can
affect the opinion of value!
Market Value Defined
The definition of market value varies; however, in simple terms, market value can be defined as the expected
sale price or forecasted sale price. Market value refers to a sale which may or will occur, while sale price refers
to a sale which has already occurred.
Market value is defined in legal decisions, real estate dictionaries, and the Standards guiding professional
appraisers. Although the wording differs in each, most definitions are similar in concept. Following are
examples of some different definitions of market value:
The most probable price which a property should bring in a competitive and open market under all
conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably,
and assuming the price is not affected by undue stimulus.
– Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP)
Market value is the estimated amount for which a property should exchange on the date of valuation
between a willing buyer and a willing seller in an arm's-length1 transaction after proper marketing
wherein the parties had each acted knowledgeably, prudently, and without compulsion.
– International Valuation Standards Committee
1
A transaction between unrelated parties under no duress (The Dictionary of Real Estate Appraisal, 4th Edition)
1.21
Lesson 1
The amount that would have been paid for the interest if, at the time of its taking, it had been sold
in the open market by a willing seller to a willing buyer.
– Federal Expropriation Act
The CUSPAP definition is recommended as being reasonably generic and comprehensive, applicable to most real
estate circumstances in Canada. It is expanded below:
Implicit in this definition are the consummation of a sale as of the specified date, and the passing of title from
seller to buyer under conditions whereby:





buyer and seller are typically motivated;
both parties are well informed or well advised, and acting in what they consider their best interests;
a reasonable time is allowed for exposure on the open market;
payment is made in terms of cash in Canadian dollars, or in terms of financial arrangements comparable
thereto; and,
the price represents the normal consideration for the property sold, unaffected by special or creative
financing or sales concessions granted by anyone associated with the sale.
The major elements of this definition are:
1. Value is related to a certain, specified point in time. A change in value after the appraisal date will not
necessarily invalidate the accuracy of the original appraisal. But, a change in effective date may
invalidate the estimate of value concluded in the original appraisal.
2. Value is the price which might reasonably and probably be
expected. Value is the expectation of someone who has
sufficient knowledge of the real estate market to form an
opinion; it is not the reasonable expectation of someone
without this knowledge. It must be emphasized that
"reasonably expected" does not infer that the appraiser himself
or herself considers the price to be reasonable, but that market
evidence supports the estimate as being reasonable and
probable.
(CUSPAP)
Market value is defined as the
most probable price which a
property should bring in a
competitive and open market
under all conditions requisite to a
fair sale, the buyer and seller each
acting prudently and
knowledgeably, and assuming the
price is not affected by undue
stimulus.
3. Willing seller and willing buyer. This means that both buyer
and seller are prepared to enter into a contract at the going
market price and are negotiating at arm's length. Neither party
is exerting undue influence, neither is under any duress to complete the transaction, nor is there any
special relationship between them which would affect the price.
4. Adequate time and exposure to the market. These terms must reflect market conditions and marketing
practice as of the date of the appraisal, reflective of a competitive and open market, subject to all typical
market influences on value and the transaction.
5. Price represents normal consideration. In other words, the property is exchanged for cash, or a
combination of cash and financing (mortgage), with the terms and conditions of the financing typical of
the market as of the date of sale. For example, the mortgage interest rate is that which is readily
available and typical for the subject property type.
This definition covers a large number of transactions and generally excludes only:


1.22
sales in which there is a special relationship between buyer and seller;
sales in which one party is exerting undue influence over the other in the transaction; and
Real Property and the Nature of Value

unusual prices due to an odd combination of circumstances which result in prices beyond any reasonable
expectation and are not likely to recur with any frequency.
The main reasons for the adoption of this particular definition of market value are:



It is objective. The appraiser is not required to determine whether the price is justified economically or
to assume degrees of knowledge of buyers and sellers.
The definition can be applied to a large proportion of past transactions. Hence, it is practical to collect
evidence of value from past market transactions.
The definition applies to a large number of appraisal situations.
Justified Price Versus Market Value
Before concluding this section, we now return to the concept of justified price, in order to contrast what market
value is and what it is not. Justification of the market price is a separate problem from estimating market value,
and its solution does not depend on the definition of market value. This brings us back to the discussion of
ceiling price and floor price.
Justifying the price falls in the area of real estate investment counselling, not appraisal. Investment counselling
relates more to the individual circumstances of the buyer (or seller) and to the value to the owner. If a client,
who has stated that they are considering buying an apartment block for $900,000, has asked an appraiser if the
property can be expected to realize this price, the appraiser estimates market value. However, if the client asks
the appraiser if this is a reasonable price for him to pay, it is another question altogether. The appraiser might be
of the opinion that the expected price of the apartment building is too high (or low) with regard to the future
economic prospects of ownership, or that the client's requirements and tax position may make the price of
$900,000 too high or low. The appraiser is then attempting to find the client's ceiling price and is expected to
use the client's own assessment of future returns and yields. It often happens that the estimate of value on this
basis is much different from market value. There is no cause for concern so long as the two different concepts of
value are kept in mind. Because these issues are not always kept separate in practice, appraisers should insist on
precise instructions including a statement of the purpose of the appraisal. These instructions should be
incorporated into the appraisal report.
Consider the example of a property owner wishing to expand their property, and needing the purchase of the
adjacent lot in order to do this. That owner would likely be willing to pay over and above the market value of the
adjacent lot as it is "worth" more to them than to other buyers. In other words, the value to the adjacent owner
in such a situation, would create a premium, based on consideration of the adjacent owner's ceiling price for the
lot. That ceiling price would be based on the cost of alternative course of action available to the adjacent owner,
such as the cost to relocate the entire operation to a larger site. Thus, the adjacent owner would be justified to
pay a higher price for the adjacent land, based on the ceiling cost established by other options, and negotiating
the best purchase price possible. The appraiser can provide various inputs to the adjacent owner to assist in the
decision, such as:



an estimate of the market value of the adjacent lot;
calculations of the cost of alternative courses of action (an analysis of options based upon the adjacent
purchasers requirements related to time, rate of return, revenue and expense projections, etc.); or
a calculation of the ceiling price.
In practice, misunderstandings tend to arise when a prospective buyer asks an appraiser "is the property is worth
$50,000?" or "is $50,000 a fair price?" Such questions are extremely ambiguous because the property might be
worth $50,000 in the eyes of the buyers and sellers generally and, in this sense, be the market value; but the
property may not be worth this amount for a particular individual. Another confusing statement often made by
appraisers is, for example, that building lots are selling at $350 a front foot but they are "worth only half this
amount." In this case, "worth" is based on their own personal opinion of value (value to the owner). The prices
actually paid are a measure of value (value in exchange) by buyers who have obviously formed different opinions.
1.23
Lesson 1
Practical Consideration: Different "Values" in Appraisal
In appraisal practice, a significant majority of assignments in Canada focus on "market value". However, there
are a number of different types of value that may be appropriate in a given context/assignment. It must be
recognized that "value" is never a fact, but always an opinion of the worth of a property at a given time in
accordance with a specific definition of the term.
In accordance with CUSPAP, "value" must always be defined, e.g., market value, value-in-use, special use
value, liquidation value, investment value, rental value, hypothetical value (i.e. "as if complete"), legislated
value, etc. Furthermore, any given definition of value is critically linked to an exposure period. The exposure
period, which is presumed to precede the effective date of appraisal, is commonly defined as follows:
The estimated length of time the property interest being appraised would have been offered on the
market prior to the hypothetical consummation of a sale, at market value, on the effective date of
the appraisal; a retrospective estimate based upon an analysis of past events assuming a competitive
and open market. (CUSPAP 7.7.1)
The concept of reasonable market exposure encompasses adequate, sufficient, and reasonable time and effort.
The reasonable period is a function of price, time and use, and is not an isolated estimate of time alone.
Especially in times of unstable or rapidly deteriorating markets, appraisers need to carefully consider the nuances
of the marketplace with respect to foreclosures, lender-owned properties, and the value differences between a
quick or forced sale versus a stabilized value with "normal" exposure time.
In addition, due to the wide variety of property types in the marketplace and the incredibly diverse scope of work
practiced by real estate appraisers, different assignments will demand different types of "value" estimates
depending on the given circumstance. As an example, consider some of the varied definitions of real property
value that appraisers in Canada and the United States may come across.
Hypothetical Value: may be used when required for legal purposes, for purposes of reasonable analysis, or for
purposes of comparison. One common hypothetical condition is to include a proposed improvement, i.e. "as if
complete." When appraising proposed improvements "as if complete", one must examine and have available for
future examination: plans, specifications, or other documents sufficient to identify the scope and character of the
proposed improvements; evidence indicating the probable time of completion of the proposed improvements; and
reasonably clear and appropriate evidence supporting development costs, anticipated earnings, occupancy
projections, and the anticipated competition at the time of completion. In accordance with the CUSPAP, for
every Hypothetical Condition, an Extraordinary Assumption must be stated in the report.
Fair Value: the estimated price for the transfer of an asset or liability between identified knowledgeable and
willing parties that properly reflects the respective interests of those parties (definition of "market value" in
IVS).
Investment Value: an entity-specific basis of value reflecting the circumstances and financial objectives of the
specific entity for which the valuation is being produced. It is often used for measuring investment performance.
Differences between the investment value of an asset and its market value often provide the motivation for
buyers or sellers to enter or exit the marketplace.
Special Value: an amount that reflects particular attributes of a real property asset that are only of value to a
special purchaser.
Synergistic Value: an additional element of value created by the combination of two or more interests where the
value of the combined interest is worth more than the sum of the original interests.
1.24
Real Property and the Nature of Value
Value in Use/Use Value: the value of a property as it is currently used, not its value considering alternative
uses; may be used where legislation has been enacted to preserve farmland, timberland, or other open space land
on urban fringes.
Forced Sale Value (or Liquidation Value or Quick Sale Value): a value resulting from a sale under
compulsion, often involving a mortgage holder under a foreclosure or a relocation, where the marketing period
is abnormally short.
Real-Estate Owned (REO) Value: a property that does not sell in foreclosure and ownership reverts to the
mortgage holder; may be an atypically motivated vendor (US term).
Broker Price Opinion (BPO): an opinion of value from a broker, where a lender believes the time and expense
of an appraisal is not warranted (US term).
The Assigned Reading includes other value definitions, such as: business value, public interest value, assessed
value, insurable value and actual cash value.
This brief review of various definitions of value should not be considered a comprehensive list. In considering
these many different definitions of "value," there is one common element: the appraisal report cannot be
misleading. Regardless of the definition of value, the given definition of value is always critically linked to an
exposure period. In order to form an opinion of value, the appraiser must identify and qualify the specific
definition of value and the corresponding exposure period (CUSPAP also requires that the source of definition be
identified when it is included). For more information on exposure time, see the UBC Real Estate Division course
"CPD 117: Exposure & Marketing Time: Valuation Impacts".
Appraisal Values Under Foreclosure
When making a mortgage underwriting decision, a lender will consider the creditworthiness of the borrower, the
desirability of lending in a particular location and market, as well as the market value of the property. This
transaction may prompt the need for an appraisal, prior to the loan being approved.
Once the loan is established, should the borrower stop making payments and the mortgage go into default, the
lender will commence a foreclosure or power of sale process. The judge overseeing the process will need advice
as to the current value of the property so that he or she can make decisions that best protect the interests of those
with secured rights over the property as well as those of the borrower respecting any residual equity.
Under these circumstances, an appraiser may be asked to determine value where a property perhaps has been
neglected. Some lenders will ask for values that are either undefined (e.g., "quick sale value") or represent
concepts inconsistent with the needs of the judge supervising the sale. The appraiser's obligation in these
circumstances is to follow professional standards in their work, produce reports suitable for their intended
purposes, and produce reports that are incapable of misleading.
As with all appraisals, an appraisal prepared for foreclosure purposes must identify the purposes of the
assignment, including a relevant definition of value. Liability to the client may depend on the appraiser's
understanding of the clients' objective (that is, its intended use) in ordering the appraisal. The purpose of the
appraisal states what value is being estimated in response to the client's intended use or objective. A definition of
the value found is required together with the source of the definition.2
An appraisal assignment that involves an estimate of value other than market value could be misleading if
prepared in isolation, that is, without reference to market value.3
2
CUSPAP 7.4
3
CUSPAP 12.16.6
1.25
Lesson 1
Someone involved in a foreclosure proceeding might ask an appraiser to produce value estimates on the premise
that the property security is somehow less valuable because of the foreclosure action. Reasons posited are
"because it has been neglected", "because we need a quick sale since interest and carrying costs are high", and
"because we can=t get inside it and don=t want to overstate what it is worth". Typically these assignments entail a
value concept other than market value, and the client explicitly expects the value concept will yield a number less
than market value.
Following appraisal standards, an appraiser needs to locate a definition for the value sought. This should be a
recognized source, such as the Appraisal of Real Estate or the Dictionary of Real Estate Appraisal. However,
many of the valuation concepts these clients bring up lack any basis in the appraisal body of knowledge B "quick
sale value", for example.
The concern about determining value under a value concept that lacks an associated recognized definition is that
the conclusion is capable of misleading (an ethical infraction) and can create the impression that the appraiser is
advocating the interest of the lender rather than applying a professional body of knowledge.
An appraiser can avoid this concern by developing a definition of the value sought through consultation with the
client and expressing this definition within the report, relative to market value (so, "quick sale value means a
sale within two weeks; it is generally lower than market value").
Most appraisers determine liquidation values in relation to market value (for example a 10% discount), and so
develop an estimate of market value as part of the analysis. Reporting the value conclusion in this way provides a
conclusion with explicit reference to market value, and avoids the ethical concerns associated with valuations
prepared for foreclosure purposes.
(Note: legal counsel involved in mortgage foreclosures generally do not want appraisals prepared on any basis
other than market value because the judges will usually give the conclusion little weight.)
Summary
This lesson provided an introduction to appraisal and appraisal as a profession. The types of appraisal reports
were explained and the forces impacting real estate and the characteristics of real property were examined. The
nature of value was discussed in detail. A thorough understanding of the relationship between value, cost and
price is essential. This lesson has begun to build the foundation of appraisal theory and concepts that are inherent
in the appraisal process and application of the approaches to estimate market value that will be presented in
subsequent lessons.
1.26
Real Property and the Nature of Value
Review and Discussion Questions
The following questions are for review and discussion purposes only. They are not to be submitted as part of the
assignment for this lesson. Answers to these questions can be found on the Course Resources webpage.
However, in order to develop your understanding, you are encouraged to attempt answering the questions before
accessing the answers. You may also wish to discuss these questions with your fellow students on the course
discussion forum B through discussing these questions, you will better understand the course materials and be
better prepared for the final examination.
1.
Three essential characteristics are necessary to gain professional recognition. List them and discuss why
they are so important.
2.
In a short paragraph, describe the three types or classifications of appraisers.
3.
Discuss whether the appraiser's obligations to the five stakeholder groups can be in conflict, and how the
appraiser can manage them.
4.
Compare and contrast three categories of value. Which one do you think is the most important in real
estate and why?
5.
Describe four characteristics that a commodity must possess in order to have "value" and discuss how
each of these characteristics contributes to creating value. Provide your own example of each of these
characteristics.
6.
Define market value and discuss what is meant by the five basic criteria.
7.
Discuss the differences between value, price, and cost. In your answer, ensure you explain how price and
cost are (or are not) linked to value.
8.
In your own words, define each of the following terms and give an example of each:
(a) Value to the owner
(b) Lending value
9.
Explain the difference between investment value and market value.
10.
List the four major forces which affect real property values and briefly describe two examples of how
each of the four forces has influenced value in your area (i.e., describe eight different examples in total).
11.
Define the principle of substitution and explain how it helps establish property values.
NOTE: Answers to selected review and discussion questions may be found on the Course
Resources webpage. However, to develop their understanding, students are encouraged to
attempt answering review questions before accessing the answers.
COURSE BULLETINS: Remember to check the Course Resources webpage for course
bulletins and note any changes in your workbook and manual.
1.27
Lesson 1
ASSIGNMENT 1
CHAPTER 1: Real Property and Its Appraisal
CHAPTER 2: The Nature of Value
The following questions should be submitted using the Real Estate Division's website
www.realestate.ubc.ca/login. See "How to Submit Multiple Choice Assignments" in the
Real Estate Division Student Handbook for more information.
Marks: 1 mark per question.
1.
Appraisers do not value chattels, but only fixtures. Which of the following is NOT considered a fixture?
(1)
(2)
(3)
(4)
2.
Which of the following statements is TRUE?
(1)
(2)
(3)
(4)
3.
Appraisal reports must be done in writing.
Appraisal reports can be done orally.
Appraisal reports are always done in narrative format.
Appraisal reports on a house are always done as form reports.
Which of the following statements regarding Canadian Uniform Standards of Professional Appraisal
Practice (CUSPAP) is false:
(1)
(2)
(3)
(4)
4.
Air conditioning units
A mirror glued to the wall
Plumbing equipment
Refrigerator
The Standards apply to all the activities by any member involving analysis, opinion or
conclusion relating to the nature, quality, utility or value of a specified interest in real estate.
According to CUSPAP, appraisal practice includes but is not limited to Appraisal, Appraisal
review, and Appraisal Consulting.
CUSPAP dictates the form, format and style of reporting.
Adherence to CUSPAP when preparing reports can help reduce an appraiser's exposure to civil
action.
In today's society, there are sometimes conflicts over the use of some lands. Environmentalists often
feel that some lands should be kept for the use by society as a whole, while the owner thinks that they
have the right to develop it as they like, subject to zoning regulations. Which concept of value does this
fall under?
(1)
(2)
(3)
(4)
Geographic
Social
Government
Economic
Assignment 1 continues on next page
1.28
Real Property and the Nature of Value
5.
Price is defined as:
(1)
(2)
(3)
(4)
6.
the amount of dollars exchanged between the two parties.
what it cost to construct a property.
what a property should sell for in the market.
current market value of the property.
Which of the following statements regarding value is false?
A.
B.
C.
D.
(1)
(2)
(3)
(4)
7.
market value.
a reasonable selling price.
a lending value for the client.
value to the owner.
Real property includes:
(1)
(2)
(3)
(4)
9.
Only A, B, and D are false.
Only A and C are false.
Only C and D are false.
Only A and D are false.
In most appraisal assignments, the purpose is to find:
(1)
(2)
(3)
(4)
8.
Highest and best use is an important consideration when determining use value.
Fair value similar to market value assumes an orderly disposition of an asset.
The intended use determines which definition of market value is applicable to a
particular assignment.
Assessed value equals market value.
property that is not artificial.
the physical land and appurtenances affixed to the land.
any and all buildings on the subject site.
all interests, benefits and rights inherent in the ownership of real estate.
The tenant of a small, freestanding retail building is a baker who has installed ovens for baking bread.
The ovens are large and heavy, and the back wall of the building had to be removed for the ovens to be
installed. The appraiser is performing a refinancing appraisal of the real estate only. How should the
appraiser treat the ovens?
(1)
(2)
(3)
(4)
The appraiser should include the ovens in the appraisal as part of the real estate, since
it would be difficult to remove them.
The appraiser should not include the ovens because they are trade fixtures.
The appraiser should include the ovens in the appraisal because they are worth a lot of
money and will add a lot to the property value.
The appraiser should not include the ovens because they add no value in most markets.
Assignment 1 continues on next page
1.29
Lesson 1
10.
Which criterion is not considered when distinguishing between personal property and fixtures?
(1)
(2)
(3)
(4)
11.
The manner in which the item is attached.
A lease term specifying the intention of the parties to the contract.
The nature of the item and whether its use has been specifically adapted for use in a
particular building.
The length of time that the item has been on the property.
An important distinction in appraisal is between "real property" and "real estate." Consider the
following examples:
A.
B.
C.
D.
Alex has bought a house and moved in his extended family.
Wes has granted an easement on his property so that Carl can get to the beach.
Shelly leases her horse ranch to William for summer grazing.
Sharon plants trees on her island get-away.
Based on the definitions of "real estate" and "real property" in this lesson, which of the following
statements is correct?
(1)
(2)
(3)
(4)
12.
The actions in B, C, and D involve examples of real property, rather than real estate.
The action in D involves an example of real property; the actions in A, B, and C involve
examples of real estate.
The actions in B and C involve examples of real property, rather than real estate.
The actions in A and D involve examples of real property, rather than real estate.
Which of the following statements are correct with respect to personal property?
A.
B.
C.
D.
(1)
(2)
(3)
(4)
13.
Personal property is an item that can be moved because it is not affixed to, or part of,
the real estate.
A stove might be considered an example of personal property.
Personal property can complicate an appraisal in terms of determining what represents
a fixture or chattel.
Any personal property that is included in the opinion of value should be described in
the appraisal.
Only statements B and D are correct.
Only statements A and D are correct.
Only statements A, B, and C are correct.
All of the statements are correct.
Market value is:
(1)
(2)
(3)
(4)
a fact that can be reported by the appraiser.
always equal to sale price.
the amount of money a property should sell for on the open market.
All the above
Assignment 1 continues on next page
1.30
Real Property and the Nature of Value
14.
Which of the following best describes who an appraiser may owe obligations to?
(1)
(2)
(3)
(4)
15.
The mayor of a small town recently hired you to estimate the value of a new, one-storey, three-bay fire
station. The fire station was built last year at a cost of $2.5 million (land and building). Similar-sized,
one-year-old commercial buildings in comparable locations are selling for $2 million. If you appraise
this building for approximately $2.5 million, you probably have conveyed an opinion of:
(1)
(2)
(3)
(4)
16.
has lost nearly all utility.
has become scarce.
has lost all desirability.
has lost any effective purchasing power.
In estimating the market value of a property, an appraiser must consider all of the following, EXCEPT:
(1)
(2)
(3)
(4)
19.
Immobility of land
Durability of real property's improvements
Divisibility of the services it provides
Divisibility of ownership
The city planning department has indicated that a vacant residential lot located in a flood zone cannot be
given a building permit. This site:
(1)
(2)
(3)
(4)
18.
market value
use value
investment value
value in transition
Which of the following is NOT a characteristic of real property?
(1)
(2)
(3)
(4)
17.
The appraisal profession.
Clients and institutions such as lending institutions and government agencies.
Society in general.
An appraiser may owe obligations to all of the above groups.
where the transaction was made in cash, terms equivalent to cash, or other precisely
revealed terms.
where the property had reasonable exposure in a competitive market.
where a fair sale was transacted with neither the seller nor the buyer acting under
duress.
where the normal or intrinsic value of the property corresponds to its market value.
Which value reflects the subjective relationship between a particular investor and a given investment?
(1)
(2)
(3)
(4)
use
market
going-concern
investment
Assignment 1 continues on next page
1.31
Lesson 1
20.
No matter where you reside, your property's assessed value will always be based on:
(1)
(2)
(3)
(4)
___
20
current market value.
current costs of construction.
current legislation governing assessments.
market value plus accrued depreciation.
Total Marks
VIEWING ASSIGNMENT ANSWER GUIDES: As soon as your assignment has been
submitted on the Real Estate Division's website, you can immediately download the
answer guide. See your Student Handbook or visit your Course Resources webpage for
more information on how to download assignment answer guides.
PLANNING AHEAD: Project 1 requires you to submit written answers to questions
based on Lessons 1-4. You should read ahead to Project 1 so that you have a better
idea of what is expected on this assignment. You may want to prepare answers to the
questions from Lesson 1 now, while the materials are fresh in your mind, rather than
waiting until Project 1 is due.
End of Assignment 1
1.32